ASX ETFs boom, diversify, cheapen in 2015

The Australian exchange-traded product (ETP) market grew assets under management by over 40 per cent while product numbers were up almost a third in 2015, according to new Morningstar report.

ETPs include exchange-traded funds (ETFs) as well as less common listed product types that don’t fall under the fund category.

The study says the 33 ETPs listed on the ASX in 2015 represented “by far the most launches we’ve seen in any year”.

“But new products were interesting for more than just their numbers,” the report says.

In particular, Morningstar says last year marked the arrival of global fixed interest and ethical ETFs to the Australia, the first foray by a major Australian bank (ANZ) into the product arena, and a flurry of active ETP and currency-hedged offerings.

The study says during the year Australian investors also gained access to ‘smart beta’ ETPs that tapped into strategies beyond the traditional dividend and value tilts.

“… a number of strategic beta ETPs focused on quality metrics [are] now available, as well as more alternative exposures such as geared and bear ETPs,” the Morningstar report says.

Late last year a price war also broke out between two of the largest ETF providers in Australia as the BlackRock-owned iShares took on the country’s largest and oldest ETF, State Street’s SPDR S&P/ASX 200.

In December, iShares swapped its benchmark for its comparative ETF from the MSCI Australia 200 to the S&P/ASX200, giving it boasting rights as the cheapest product to track that index.

State Street responded by dropping the fees on the $$3.2 billion SPDR S&P/ASX 200 ETF from 0.286 per cent to match iShares’ 0.19 per cent, allowing it to claim “the same index, the same fee, but its greater size offered much greater liquidity”.

This January the A$410 million iShares ASX200 ETF lowered its fees to 0.15 per cent to regain the title as cheapest-in-category.

Morningstar notes both iShares and State Street decreased fees on other ETFs during 2015 with US manager Van Eck also joining the discount game after almost halving the fee on one of its ASX-listed Market Vectors global equity products.

“Three key themes of 2015 were asset growth, product proliferation, and price competition, and we expect those trends to continue,” the Morningstar report says.

Since December 2010 ASX-listed ETFs have rocketed from just A$4.53 billion under management spread across 41 products to A$21.09 billion and 134 funds as at the end of last year.

Growth in the Australian ETF remained flat from 2000, when the product type first hit the ASX, until the height of the GFC in 2008 as both listings and funds under management took off.

As at December 2008, the Australian ETF market boasted 19 products (almost five-times the previous year) and A$1.14 billion under management. Over the following seven years funds under management increased by 1,750 per cent with product choice increasing more than 605 per cent.

While Australian ETF providers don’t separate out flows from across the Tasman, it is understood New Zealand retail and institutional investors do have significant holdings in the ASX-listed products.

Earlier this month the NZX reported funds under management in its Smartshares range of ETFs had jumped by about 1,000 per cent to hit $1.5 billion over the 12 months ending January 31, fueled mainly by transfers of about $1 billion from its KiwiSaver and super fund subsidiary, SuperLife.

In 2015, Wellington-based investment and KiwiSaver firm, Grosvenor, also released a range of ‘exotic’ ETFs, structured as portfolio investment entities (PIEs) but investing into underlying Australian and US-listed products.